The Bottom Line: Are You Ready for the Turnaround?

The past 12 months or so had been a roller coaster ride for the electronics industry in Asia Pacific. With an uncertain economic recovery prospect, volatile demand, as well as extreme price competition, we have witnessed painful wage freezes, reductions in the workweek, retrenchments and plant shutdowns at many small-medium businesses (SMBs) as well as multinational companies (MNCs).

Poor visibility into customer demand has put most organizations in a difficult position to plan ahead. The pressure is mostly being felt by the SMBs, as their larger counterparts are shrinking their forecast horizon from a few months to a few weeks. This implies that the upstream supply chain partners must demonstrate agility and responsiveness to an extent previously not seen. This problem has been compounded by the lower supply chain process maturity at tier 2 or tier 3 partners - thereby affecting the overall agility of the entire supply chain.

While consumer demand remains volatile, companies still need to find ways to meet their profit target. In response to uncertain demand and tough competition, the majority of electronics manufacturers have adopted measures to reduce their operation cost, and find better ways to drive sales and increase profit margins.

The relentless focus on cost reduction has been of prime importance. However, there are two distinct polarities that emerged in response to the current situation. One group of organizations is purely focusing on cost reduction. They implemented wage cuts, reduced headcounts, decommissioned less productive plants and assets. The other group has implemented processes for better cost efficiency, rather than just cutting cost. These companies examined their existing manufacturing operations, customer management processes, as well as product development strategy. The key objective was to improve overall organizational efficiency, agility and responsiveness. In our opinion, it is this group of organizations that hold the maximum chance of a quick turnaround once the economic situation improves. Moving into 2010 we see three key process areas as being critical for electronic manufacturers to embrace:

Improving shop floor visibility
As forward-looking organizations focus internally for efficiency, the key area that is getting increased attention is the visibility and control of shop floor operations. Over the past decade or so, manufacturers concentrated on maximizing production volume, with little or no effort in integrating shop floor operations with backend organizational processes. Such silos of information and lack of real time process visibility hampered the manufacturers' ability to be agile and responsive to market dynamics. In the current situation, such information is increasingly becoming important to make informed decisions to support the business needs as well as reduce risk. We expect that manufacturing execution systems (MES) to play a key role in streamlining management decision-making by integrating shop floor information with the organizational decision matrix.


Customer demand management
Customer demand management is central to manufacturers' business growth and profitability. However, for the electronics industry which is dominated by customer-driven schedules, demand forecasting had traditionally taken a back seat. In the current situation, once again, proactive demand management has come to the mainstream. As the customer forecast horizon is shrinking, without a proper plan, suppliers (manufacturers) won't be able to meet the tight deadlines. It is even more difficult if the customer schedule changes frequently, compounding the risk that the manufacturer bears. Some organizations have built real-time feedback loops from their key customers in order to proactively manage their upstream supply chain processes. CRM systems are expected to assist manufacturers to some extent in analyzing and managing customer expectations. Certain consumer-facing companies will also be using web 2.0 tools to understand customer needs and preferences.

Product lifecycle management
One of the key competitive differentiator for manufacturers is the quality of product and processes. Design for compliance has so far been important for a streamlined product development process. However, as product development processes become more complex, with multiple touch points and feedback loops from customers, suppliers, and operations, the need for greater control is becoming increasingly important. Not only is the design workflow crucial, it is equally important to have process visibility and control of the end-to-end design process. Manufacturers have started to realize this, and have started to implement this critical element in product development through PLM solutions.

The bottom line
The year 2008-2009 has seen one of the worst global economic performances in recent history. In Asia Pacific, export-dependent countries suffered significantly due to shrinking orders from the United States and Western Europe. Even domestic demand took a toll due to lack of consumer confidence and drop in discretionary spending. As of late 2009, though there have been signs of "green shoots" but the real bottom of this crisis is still anybody's guess. Manufacturers in Asia Pacific are understandably cautious in their approach, both in terms of business risk mitigation as well as in their IT investment. To support the processes, we expect to see greater investment in three areas.


•Customer centricity will get renewed interest to maintain growth. Manufacturers will build stronger relationships with existing customers to ensure minimum disruption in business. Customer relationship management (CRM) systems will play a key role in managing critical customer information.

•Business intelligence (BI) will get increased attention, as businesses seek to reduce risks of inventory holding and moving as close to real-time manufacturing as possible. The need for real-time information on orders, production, inventory, and raw materials in order to make decisions will escalate.

•Product life-cycle management (PLM) strategy will become key to business growth for better product management, collaborative design and development, providing a customer feedback loop for product enhancement, as well as providing analytical capabilities to manage the entire product life cycle.

With pressure on working capital and uncertainty in accounts receivables from customers, improving cost efficiency will be the most important focus for manufacturers. The trend for 2010 will be "doing more with less" and the leverage of existing assets and infrastructure to deliver maximum value to businesses.

About the author
Debashis Tarafdar is Associate Research Director at IDC Manufacturing Insights Asia/Pacific. In his current role, Debashis is responsible for managing IT opportunity research in Asia Pacific, providing research and in-depth analysis of the ICT priorities and deployment strategies in key discrete and process manufacturing segments.